Read this stuff first...
posted by mad691 on another thread.
http://www.azcentral.com/business/articles/1028amwest280.html
AmWest cutting flights, growth plans as profits sink
Dawn Gilbertson
The Arizona Republic
Oct. 28, 2004 12:00 AM
Faced with continuing high fuel prices and low airfares, America West Airlines is cutting some cross-country flights and other unprofitable routes and sharply scaling back its growth plans for next year.
Phoenix travelers will notice few changes, though, as the affected flights are mainly between the East Coast and California and red-eye flights out of Las Vegas.
The Tempe-based carrier announced the cutbacks Wednesday as it released its worst quarterly results in more than a year and reiterated that this quarter's numbers also will be ugly. Combined with big losses at most carriers except perenially profitable Southwest, and Tuesday's bankruptcy filing by fellow low-cost carrier ATA, America West's loss shows the breadth of the industry's woes.
The company posted a loss of $47.1 million for the July-September period, which includes the peak summer vacation season. A year ago, it made $32.9 million in the period. Like most airlines, America West's planes were packed this summer, but profits were hit by the double whammy of sky-high fuel prices and low ticket prices tied to a flurry of new flights in many markets for the first time since Sept. 11, 2001.
The airline's fuel bill, its second-largest expense after labor, jumped 49 percent in the quarter, to $136.3 million. Unlike other businesses, the airline can't pass along the increase to consumers in the form of higher fares because the industry has too many seats chasing too few passengers. America West's sales for the quarter fell 2.3 percent, to $578.5 million. Its revenue per seat, a key industry measure, fell more than 9 percent, to 7.09 cents from 7.82 cents.
The only bright spot was the airline's ultra-low costs, excluding fuel. Like Southwest Airlines, America West has worked feverishly to maintain its low-cost advantage, watching every penny and getting even more productivity out its 13,000 employees.
America West had previously warned of significant losses for the third and fourth quarters, but the results still were far below Wall Street's expectations. Analysts on average were expecting a per-share loss of 63 cents excluding special charges; America West's loss on that basis was $1.22 per share.
The airline's stock, already hit hard this year given the industry's woes, was down by nearly 12 percent at one point Wednesday. It rebounded to close at $4.36, down 7 cents, or 1.58 percent. The shares started the year above $12. One analyst downgraded his rating on the stock from "buy" to "hold" after the results were reported.
America West Chairman and Chief Executive Officer Doug Parker said the company is disappointed that it broke its string of five consecutive quarterly profits and put the blame squarely on factors outside of its control: fuel prices and too many flights.
Practically every airline but Southwest is losing money, with the industry total expected to top $1.2 billion for the quarter. Southwest has been protected on the fuel end by locking in low oil prices through hedging. Most other airlines can't make as aggressive a bet as Southwest did because their credit is not as good.
"If Southwest were paying what the rest of us were paying, they wouldn't be profitable either," Parker said.
Some analysts have pinned at least part of the blame on America West's business strategy. In a recent report, airline analyst Jamie Baker of JPMorgan praised the airline's low costs, but said it "seems incapable of figuring out where best to fly."
In downgrading the airline's stock Wednesday, Merrill Lynch airline analyst Michael Linenberg said, "The company's growth plan is faltering."
Much of the criticism has centered on America West's introduction of transcontinental service, begun a year ago.
It started with service between New York and Boston and Los Angeles and then added San Francisco. Until then, all of its flights went through either its Phoenix or Las Vegas hubs. The company, which chopped it business fares nearly three years ago, saw an opportunity to lure business travelers who were paying $1,000 to fly the route.
The competition, especially from United and American, proved to be brutal. America West made what it called seasonal cutbacks earlier this fall and on Wednesday announced the additional cuts. Beginning next month, it will offer five daily transcontinental flights, down from a peak of 12 this summer, for a reduction of nearly 60 percent. One route, San Francisco-Boston, is being cut entirely.
Even as it cuts back, America West says criticism of the flights has been misplaced because the new flights deliberately represented only a small part of its route system.
"The results we presented today would not be dramatically different" without the transcontinental flights, Parker said.
In addition to those cutbacks, America West plans to reduce its red-eye flights out of Las Vegas, which it had beefed up to get more use out of its airplanes. That spreads the costs over more passengers.
As for next year, the airline cut its growth plans from 8 to 10 percent additional capacity to 3 to 5 percent. It was due to take delivery of five planes in January but now will take four, Parker said.
As long as oil is at $55 a barrel and even struggling airlines are adding service, America West says it plans to be cautious.
"We'll pare back and retrench . . . and not worry as much about the growth at this point and time," he said.